Fifth Circuit Report: December-January Edition

The Fifth Circuit decided five bankruptcy cases over the past two months.  They include cases where the effort to recite the facts exceeded the importance of the decision, cases about the effect of summary judgments granted, denied and reversed and a footnote about Florida strip clubs.

United States v. Stanley, No. 13-60704 (5th Cir. 12/12/14).    This case concerns dischargeability of taxes.   Stanley filed for bankruptcy in 2009.   He owed taxes for the years 1998-2008 at the time.   In 2011, the government filed suit to reduce to judgment the tax claims.     The District Court granted summary judgment in favor of the government for years 2005-2008 because they came due in the three years prior to bankruptcy and years 2009-2010 because they were post-petition years.   Despite trial testimony that he suffered from bipolar disorder, the District Court ultimately found that Stanley had "willfully" failed to pay his taxes and that they were not discharged.  

The Court of Appeals noted that section 523(a)(1)(C) has both a conduct requirement and a mental state requirement.   There was no dispute that the Debtor met the conduct standard.   The mental state was based on a three part test that the debtor  (1) had a duty to pay taxes under the law (which basically duplicates the conduct requirement), (2) that he knew that he had a duty and (3) that he voluntarily and intentionally violated that duty.      The Fifth Circuit affirmed the District Court finding that:

In light of Stanley’s demonstrated ability to continue his medical practice, tend to many of his other financial obligations, and participate in complex financial transactions, compounded by the length of time at issue (over a decade) and evidence that Stanley would have had periods when he exhibited no symptoms of bipolar disorder during this span, the district court did not clearly err when it concluded that Stanley voluntarily and intentionally attempted to evade his tax obligations. We therefore uphold the district court’s finding that Stanley willfully attempted to evade his federal income taxes.

Opinion, p. 10.

Isbell v. DM Records, Inc. (Matter of Isbell Records, Inc.), No. 13-40878 (5th Cir. 12/18/14).   In this opinion, we learn that the song "Whoomp (There It Is)" was based on a chant when women disrobed in Florida strip clubs in the 1990s.  (It's in a footnote so it must be true).    We also learn that for half of the song's existence, the parties have been litigating over who owns the composition rights.    

The writers entered into a Recording Agreement with Isbell Records, Inc. d/b/a Bellmark Records which provided that 50% of the composition rights would go to Bellmark's publishing affiliate.   Bellmark filed bankruptcy and in 1997, its trustee sold all of its assets to DM Records.  DM exploited the copyright to Whoomp.   However, it turns out that the president of Bellmark, Albertis Isbell, had his own music publishing company, Alvert Music and he thought that it owned the rights rather than DM..    In 2002, Isbell filed suit against DM.    The District Court dismissed finding that Isbell had assigned his rights to someone else.   However, the Fifth Circuit reversed and remanded and the case finally went to trial in 2012.    The District Court ruled as a matter of law that Isbell owned the rights.  The jury awarded actual damages of $2.1 million.  The Fifth Circuit affirmed.   The opinion deals with a number of technical arguments about the trial itself which have nothing to do with bankruptcy.

The important take away here is that a sale free and clear of liens only conveys what the Debtor owned.    It will not create title where none existed.        

Ferguson v. Baron (Matter of Baron), No. 14-10092 (5th Cir. 12/22/14)(unpublished).   This case concerned procedural complications arising from an involuntary proceeding brought against an individual by various attorneys who he had hired and fired but did not pay.   This is unfortunately a case where the courts created confusion for the litigants.

As mentioned above, Baron hired multiple lawyers for one of his companies.  The District Court ordered a receivership over Baron and his companies.   It also conducted a hearing on the amount of fees owed to the various law firms and concluded that $879,000 was owed.  Baron appealed both orders to the Fifth Circuit.   The Fifth Circuit reversed the receivership order but did not address the order determining the amount of the fees.    Indeed, the Fifth Circuit said that the other orders of the District Court were not affected.

On the same  day that the reversal came down, the lawyers filed an involuntary bankruptcy petition.  The Bankruptcy Court granted partial summary judgment that the creditors held undisputed claims based on the fee order.   It then held a trial and concluded that the Debtor was not generally paying his debts as they came due.  The District Court reversed, concluding that the Fifth Circuit's order dissolving the receivership meant that the fee order was also no good. The District Court also concluded that there was at least some bona fide dispute as to the amount of the fees. The District Court remanded the case to the Bankruptcy Court with orders to dismiss. This was a problem for the attorneys because they had never had the chance to prove up their claims in Bankruptcy Court because they had been granted summary judgment.

The Fifth Circuit reversed the District Court's dismissal of the involuntary petition.   It did so based on the fact that the Debtor and the attorneys had expressly stipulated that if the summary judgment was denied, they would still be entitled to a hearing to prove up whether their claims were subject to a bona fide dispute.   However, the Court could have ruled on another equally important ground.  When a Court denies summary judgment, it does not automatically mean that the other side is entitled to relief.  It simply means that there is an issue for trial.   Here, the fact that there was a dispute about whether there was a dispute did not mean that the creditors held disputed claims and were ineligible to file the involuntary.  It simply meant that their status had yet to be determined.  

Thompson v. Deutsche Bank National Trust Company, No. 14-10084 (5th Cir. 12/29/14).    While this is not a bankruptcy case, it relates to Texas Home Equity loans, a subject which often arises in bankruptcy cases. The Thompson obtained a home equity loan from Option One in 2006.  They sued Deutsche Bank in state court and obtained a default judgment.    Deutsche Bank contended that it had never been properly served and removed the case to federal court.   The U.S. District Court set aside the default judgment and dismissed the suit on the basis that the Thompsons were required to bring their suit within four years after the loan was made, which would have been in 2010.   The Fifth Circuit affirmed based on prior precedent that suits based on constitutional infirmities in Texas Home Equity loans must be brought within four years from when the loan was made.   This ruling and the prior case which it follows mean that infirm home equity loans will be purified four years after they are made.   Since many borrowers will not examine their paperwork and discover problems until years later when problems arise, they will lose the benefits that the legislature (and the voters) intended to provide them with.   This problem can be solved by the Texas legislature enacting a discovery rule provision.

Trang v. Taylor, Bean & Whitaker Mortgage, No. 14-50281 (5th Cir. 1/7/15)(unpublished).    Debtor sued to block a foreclosure.   The lender removed to District Court and moved for dismissal.   The District Court denied a motion for remand and dismissed the suit.     

On appeal, the Fifth Circuit found that the District Court properly denied the motion to remand.   Even though the law firm, Barrett, Daffin, Frappier & Engel, LLP, was a Texas resident, the complaint did not allege sufficient facts against the firm.   Therefore, they were improperly joined and did not factor into the diversity equation.

 The Debtor made the novel argument that because the lender had filed its own bankruptcy proceeding and had not assumed the deed of trust as an executory contract, that the deed of trust was rejected and therefore could not be assigned to a new holder.   The Court ruled that even if the deed of trust was an executory contract (which it said was "highly contestable"), rejection did not render the deed of trust unenforceable.

TCI Courtyard, Incorporated v. Wells Fargo Bank, N.A. (Matter of TCI Courtyard Incorporated), No. 14-10635 (5th Cir. 1/22/15)(unpublished).    This is a case where the feasibility of Debtor's plan depended upon how interest was calculated.   The note provided that after default, accrued interest would be added to the balance of the note.   The Fifth Circuit affirmed the conclusion that this meant that post-default interest was compounded.    Because the plan was infeasible based upon calculation of the debt, confirmation was denied and the case was dismissed.

Ratliff Ready-Mix, LP v. Pledger (Matter of Pledger), No. 14-50023 (5th Cir. 1/23/15)(unpublished). This case involves the rare situation where a debtor prevailed on a dischargeability complaint based on the Texas Construction Trust Fund Act.   Barry Joe Pledger had a construction company.   It was paid for three construction projects but did not pay its concrete subcontractor.   When Pledger filed for chapter 7 bankruptcy, Ratliff Ready-Mix filed a non-dischargeability action under section 523(a)(4).    Both parties filed for summary judgment asserting that there were no material disputed facts.   The Bankruptcy Court granted summary judgment for the Plaintiff.  On Motion for Reconsideration, the Court reversed the ruling for the Plaintiffs and entered summary judgment for the Defendant.   Among other things, the Bankruptcy Court found that the Plaintiffs must “adduce some evidence that funds were misapplied under the test.” I

The Fifth Circuit affirmed the Bankruptcy Court's ruling in favor of the Debtor.   Even though the Debtor's company was paid in full but didn't pay Ratliff, this was not enough to ensure victory for the creditor.   The critical factor was whether a contractor that uses Construction Trust Funds to pay general overhead expenses instead of subcontractor bills has violated the trust.   The Fifth Circuit ruled that under prior precedent, the answer was no.  As a result, the Debtor was entitled to a take nothing judgment.

Bankruptcy Court Denies Request to Transfer Case to Delaware

The venue reform movement has focused on cases filed in Delaware and the Southern District of New York which are either not transferred (Enron and Energy Futures) or transferred at considerable time and expense (Patriot Coal).   However, a decision out of Texas denied a request to transfer an adversary proceeding to Delaware.    Think3 Litigation Trust v. Zuccarello (In re Think3, Inc.), No. 13-1081 (Bankr. W.D. Tex. 1/4/15), which can be found here.

What Happened

The Think3, Inc. case was unusual in more ways than one.    Think3 was incorporated in Delaware and had a large branch office in Italy.   An involuntary bankruptcy proceeding was filed against the company in Italy.   The Debtor filed a voluntary chapter 11 petition in Texas on May 18, 2011.   The Italian Trustee filed a Chapter 15 petition in Texas later the same year; however, recognition was denied and the petition was dismissed.  

The voluntary chapter 11 case resulted in a confirmed plan with a Litigation Trust.    The Litigation Trust sued certain former officers and directors, four of whom were residents of other countries, primarily Italy.   The intrepid Litigation Trustee was able to serve the foreign defendants through the Hague Convention.     

The Defendants brought motions to dismiss for failure to state a cause of action and motions to transfer venue.   The Court's ruling on the motions to dismiss contains an excellent discussion of Rule 12(b)(6) as well as Delaware breach of fiduciary duty law.  (The Court actually discusses all nine causes of action in great detail, but I stopped reading after breach of fiduciary duty).  Nevertheless, what interested me was the motion to transfer venue.    

The Motion to Transfer Venue

According to Judge Mott:

(T)he Director Defendants (Defendants Zuccarello, Costello, Kaufmann and Perry) have requested this Court to transfer venue of this adversary proceeding to the U.S. District Court for the District of Delaware.11 In support, the Director Defendants primarily rely on Think3’s incorporation in Delaware and the resulting application of Delaware corporate law to many disputes in this proceeding. However, without more, the Director Defendants have failed to meet their burden to demonstrate that transfer of venue to Delaware is warranted.

Opinion, p. 53.  

The Bankruptcy Court started with the presumption that the adversary proceeding belonged in the Court where the main proceeding had its venue.     It then cited a six factor test as follows:

(a) Efficiency and economics of estate administration;
(b) Presumption in favor of the “home court”;
(c) Judicial economy and efficiency;
(d) Fairness and the ability to receive a fair trial;
(e) The state’s interest in having local controversies decided within its borders; and
(f) Plaintiff’s original choice of forum.

The Court found that five out of six factors weighed in favor of retaining the case in the Western District of Texas.   Of course, the test seems to be weighted in favor of retaining venue.   Two of the six factors, the presumption in favor of the home court and the Plaintiff's original choice of forum , will always favor keeping the case.   The ability to receive a fair trial is a factor unlikely to arise in a bankruptcy setting.   As a result, the six factor test really boils down to efficiency and economics of estate administration, judicial economy and efficiency and the state's interest in having local controversies decided within its borders.

In its discussion of judicial economy and efficiency, the Court found that applying Delaware corporate law was not a major concern.

The primary thrust advanced by the Director Defendants in support of venue transfer is that substantive issues of Delaware corporate law are involved in this adversary proceeding, which would best be handled by a Delaware court. However, the “learning curve” of Delaware corporate law is not as great as the Director Defendants suggest. Bankruptcy courts are regularly called upon to decide issues of corporate law of another state. Indeed, Texas bankruptcy courts are often required to interpret Delaware corporate law; just as Delaware bankruptcy courts are often required to interpret Texas law.

Opinion, p. 55.   Although Judge Mott spent his legal career based in El Paso, Texas, he had a national practice.   As a result, having to apply Delaware corporate law does not appear to have bene a daunting task.   Indeed, due to the ubiquity of Delaware incorporation, there are probably a great many lawyers versed in Delaware corporate law who do not practice in Delaware. 

This case could well have originated in Delaware and remained there.    Because the company was incorporated in Delaware, current law would have permitted a filing there.   Had the main case been filed in Delaware, the presumption would have been that the adversary proceeding should have been filed there as well.   However, because the main case was filed in Texas, the presumption was in favor of Texas venue and here the case remained.   

The Difficulty With Multi-Part Tests for Venue

Interestingly, there are as many multiple factor tests for transfer of venue as there are cases.   In re BDRC Lofts, Ltd., No. 12-11559 (Bankr. W.D. Tex. 2012), an opinion by Judge Craig Gargotta which was partially relied upon by the Court in the Think3 opinion, contained a wider list of factors to consider, including:

1.  Efficient Administration of the Estate;
2.  Judicial Economy;
3.  Timeliness;
4.  Fairness;
5.  Proximity of creditors;
6.  Proximity of the debtor;
7.  Proximity of witnesses;
8.  the location of the assets;
9.  whether transfer will promote the economic administration of the estae;
10.  the necessity for ancillary administration.

BDRC was an opinion dealing with transfer of a main case rather than an adversary proceeding.  As a result, it was necessary to massage the factors some.

A recent opinion by Judge Marvin Isgur divided the factors into public and private and discounted the plaintiff's choice of filing.

The private factors are: (1) ease of access to sources of proof; (2) availability of compulsory process to secure attendance of witnesses; (3) cost of attendance for willing witnesses; and (4) all other problems related to ease, expeditiousness and expense of trial. The public factors are: (1) administrative difficulties because of court congestion; (2) local interest in having local cases decided at home; (3) familiarity of the forum with governing law; and (4) avoidance of conflicts of law problems or applying foreign law. No single factor is dispositive and the factors are not exhaustive. Rather district courts have discretion to adjudicate motions to transfer venue on a case-by-case basis.

Additionally, the Fifth Circuit has held that a party's choice of forum should be given little, if any weight in venue analysis.

In re Charles Michael Lucas, 2012 Bankr. LEXIS 5067 (Bankr. S.D. Tex. 2012) at *7-8.

With all of these tests out there, it raises the question of whether they are useful at all.  28 U.S.C. Sec. 1412 identifies two factors to be considered:  the convenience of the parties and the interest of justice.   Rather than developing elaborate lists of factors to be considered, it might be just as easy to tick off the specific facts that weighed into convenience of the parties and the interest of justice.   While it would not look as precise as a six or eight or ten factor test, it could be just as useful, especially when the multipart tests all allow the court to give more weight to whatever factors it deems most important.  Such a fluid test is more of an illusion than a clear standard.      

Final Note

 Having written an epic, 58-page opinion, Judge Mott concluded with a similarly epic conclusion.  He wrote:

When viewed through the restrictive prism that Rule 12(b)(6) requires, much of Plaintiff Trust’s Complaint will survive until another day. The Court realizes that there will be another side to the story told in the Complaint–and that facts and proof (not just allegations and plausibility) will ultimately govern the outcome. There are mountains to be climbed and defenses to be scaled for Plaintiff Trust to ultimately prevail. Equally evident is that the Defendants will be forced to defend this suit and their actions in what they likely consider to be a faraway land.

This arduous preliminary skirmish, which involved hundreds of pages of pleadings and countless hours of effort, has now come to the end. The Court will enter a separate Order on the Motions To Dismiss under Rule 12(b)(6) filed by the Defendants consistent with this Opinion, and denying the request to transfer venue to Delaware. The Court will also enter an Order requiring the parties to conduct a planning conference and submit a proposed scheduling order, so that the discovery stage of this proceeding can commence.

Opinion, p. 58.    Judge Mott often employs a well thought out turn of phrase in his opinions, as well as quotes from films and popular music.   I am glad that I finally had a chance to feature one of his writings.   

A Cautionary Tale About Injunctions

Many bankruptcies are prompted by foreclosure postings.   Often the debtor must weigh whether to seek an injunction vs. filing bankruptcy.   A recent Texas case makes the point that simply getting the court to grant an injunction is not enough.   Unless the procedures are strictly followed, the injunction may not be valid.   However, that does not mean that the path will be easy as one substitute trustee found out.   The case is In re Chaumette, 2014 Tex. App. LEXIS 13799 (Tex. App.--Houston[1st.Dist.], 2014, orig. proc.).   

Black Sigma, LLC sought a temporary injunction against Michael Robinson to prevent a trustee's sale of its property.   On August 22, 2011, the trial court heard the movant's evidence then cut the hearing short stating that he had a criminal docket to attend to.   The trial court stated that the movant had put on enough evidence.  The creditor protested that he had evidence to put on as well but was not allowed to do so.   The trial court entered a temporary injunction which read as follows:

The Court, having held a hearing and received evidence from Plaintiff requesting injunctive relief and argument of counsel, if any, is of the opinion that Plaintiff's application has merit and an injunction should be and is hereby GRANTED.

The Court finds:

1. Plaintiff has a probable right on final trial to the relief that it seeks;

2. Plaintiff will suffer irreparable injury for which he has no legal remedy if this injunction is not granted.

IT IS, THEREFORE, ORDERED that Michael P. Robinson, Defendant in this cause and any alternate trustee appointed by him, Robinson's agents, servants, employees, and attorneys and all persons in active concert or participation with him be temporarily and/or permanently enjoined from conducting a foreclosure sale as substitute trustees on September 6, 2011 or anytime during the pendency of this case or until further order of the Court[.] 

The trial court then set a hearing on September 19, 2011 to allow the creditor to present evidence to try to persuade the court to dissolve the injunction.    However, the substitute trustee proceeded with the sale anyway.    The creditor came back on September 19 and 22, 2011 and put on its evidence only to have the trial court reaffirm its original ruling.   The creditor then filed an interlocutory appeal.   During the interlocutory appeal, the debtor filed a Motion for Contempt and for Referral to the Trial Court to Enforce Temporary Injunction."

The trial court commenced civil and criminal contempt proceedings against David Chaumette, the substitute trustee.    On November 19, 2012, the trial court found Chaumette guilty of civil contempt.   The trial court ordered him confined in the Brazoria County jail until he "purges himself of contempt by executing and recording a document in form acceptable to the Court, vacating the said substitute trustee's deed, effective September 6, 2011."   Eleven months later, the substitute trustee filed a "Rescission of Foreclosure Sale" in the real property records.   However, the trial court did not find this document to be acceptable.   The court drafted its own document which the substitute trustee did not sign because he felt it was inaccurate.   

On November 8, 2013, the trial court issued a capias for the substitute trustee's arrest based on the November 19, 2012 contempt order.    The substitute trustee filed an application for writ of habeas corpus.   The Court of Appeals granted the writ because the contempt order did not clearly specify what the substitute trustee had to do to purge himself of contempt.

Having failed to sustain a civil contempt order, the trial court held a two day trial which resulted in a criminal contempt order providing for the substitute trustee to be incarcerated for 45 days.   The substitute trustee filed a second application for writ of habeas corpus.    

The Court of Appeals granted the second writ of habeas corpus on the basis that the court's temporary injunction was void and therefore unenforceable.    Under Texas Rule of Civil Procedure 683, an order for temporary injunction must "set forth the reasons for its issuance."   According to the Court:

"'[T]he obvious purpose of [Rule 683] is to adequately inform a party of what he is enjoined from doing and the reason why he is so enjoined.'" (citation omitted)(emphasis in original).

Opinion, p. 12.     The Court of Appeals found that the temporary injunction did not meet this standard.

Here, the only part of the September 1, 2011 temporary-injunction order that can be construed as setting forth the reasons for its issuance reads as follows: "The Court finds . . . Plaintiff will suffer irreparable injury for which he has no legal remedy if this injunction is not granted." A statement indicating only that a plaintiff will "suffer irreparable injury for which he has no legal remedy" if injunctive relief is not granted does not comply with the specificity requirements of Rule 683.

Opinion, pp. 12-13.   

Why did the trial court grant the temporary injunction?   Why didn't the plaintiff's lawyer put this in the order?   Why did the substitute trustee proceed with the foreclosure after the trial court entered a temporary injunction?     The opinion does not say and the reader is left to wonder.   

Thus, because the order did not specifically state the reasons it was being granted, it was void and the substitute trustee could not be held in either civil or criminal contempt.    However, it took the substitute trustee (who is a former president of the Houston Bar Association according to the Texas Lawyer) three years to clear his name.    This case seems to be a tragedy of errors with no clear winner.   However, it provides a good object lesson in why it is important to read the rules carefully and avoid taking shortcuts in drafting.   Just because a judge will sign an order does not make it valid. By the same token, ignoring an order simply because it is void isn't a real good idea either.  

New Scottish Law Allows a BRO from a BADAS(S)

The new Scottish bankruptcy law which will take effect in April contains some great acronyms, including BADAS and BRO.    Unfortunately, the Bankruptcy and Debt Advice (Scotland) Act 2014 ("BADAS") is missing the second "s" which would make it a truly badass law.   From my brief review of an article by Rob Aberdein, the new Scottish law is a hybrid of Chapters 7 and  13 under BAPCPA.   However, it seems to cut out lawyers altogether, relying on a creature known as the Accountant in Bankruptcy ("AiB").

Like BAPCPA, a Debtor must obtain a credit counseling briefing before having his estate sequestrated, which is the Scottish version of bankruptcy.   This must be obtained from an "approved money advisor."    Additionally, the Debtor must later take a "financial education course."

One unique feature of BADAS is that much of the initial decisionmaking is delegated to the AiB, who may or may not be the same person as the Trustee.    According to Mr. Aberdein, 

The effect of the BADAS Act in this context is that the sheriff has been ‘pushed out’ of the sequestration process to the role of an appeal body where debtors or trustees seek review of a decision by the AiB.

(Note:  According to Wikipedia, in Scotland a sheriff is analogous to a judge and sits in a second-tier court called the Sheriff Court.   As best I can tell, the Sheriff is a bit like a County Court at Law Judge in Texas).   

The powers of the AiB include:

• The AiB now has the power to make and vary Debtor Contribution Orders.
• Applications for the recall of sequestration are to be made to the AiB and not the sheriff where a debtor has paid or is able to pay his/her debts in full. The AiB can also grant a recall of an award of sequestration.
• Where the AiB is not the trustee, an application can be made by the trustee to the AiB for a direction in relation to any matter arising in the sequestration.
• The AiB has the power to remove trustees or commissioners.
• The AiB can extend the period (currently 28 days) where a trustee must adopt or refuse to adopt a contract.
• A ‘Bankruptcy Restriction Order’ (‘BRO’) can be made by the AiB; and can now only be made by a sheriff if the AiB makes an application to this effect.
• The AiB can make an order converting a Protected Trust Deed into a sequestration award. Previously, a petition had to be made to the sheriff.
• In addition, the AiB can make an order to cure defects in procedure such as correcting clerical or ‘incidental’ errors in documents and can waive a failure to comply with a time limit.
• The AiB can, instead of a sheriff, review and revalue if appropriate the valuation of contingent debts by a trustee.

 The Scottish version of the means test is the Common Financial Tool ("CFT").   The AiB uses the CFT to determine the amount of the contribution to be made by the Debtor.   The AiB may set the debtor's contribution at zero and may approve a moratorium on diligence of up to six months not more than once in a year.   

Under BADAS, creditors have 120 days of receiving notice of the statutory meeting to submit claims.  If no meeting is convened, they have 120 days from the date on which the trustee gives notice inviting submission of claims.    

Under BADAS, the debtor can obtain a discharge within six months under the Minimal Assets Process ("MAP").   The MAP is pretty stringent.   A debtor cannot have debts of more than 17,000 pounds (about $25,000), assets of more than 2,000 pounds (about $3,000), no single asset worth more than 1,000 pounds (about $1,500) and cannot own land.    

There is not an automatic discharge of the debtor outside of the MAP.    Instead, the Trustee (who may also be the AiB) must submit a report within 10 to 12 months as follows:

The report must also state whether, in the opinion of the trustee, the debtor has complied with any contribution order, co-operated with the trustee, complied with the statement of undertakings, made a full and fair surrender of the estate, made full disclosure of all claims the debtor is entitled to bring against other persons and has delivered to the trustee all relevant documents relating to the debtor’s estate and financial or business affairs.

What this suggests to me is that instead of making payments from current monthly income over a period of time, the debtor is expected to make a lump sum contribution to the creditors within approximately a year of filing.     Of course, I may be wrong.   If you desire more information about BADAS, I would suggest that you fly to Scotland and play a round of golf with Mr. Aberdein.   His email address is rob.aberdein@acandco.com.  

rob.aberdein@acandco.com

rob.aberdein@acandco.com

  

Ten Most Memorable Quotes of 2014

Here is a look back at some of the most memorable quotes that appeared in A Texas Bankruptcy Lawyers Blog last year.

10. Asarco, L.L.C. v. Jordan Hyden Womble Culbreth & Holzer, P.C. (In re Asarco, L.L.C.), 751 F.3d 291 (5th Cir. 2014), cert. granted, 2014 U.S. LEXIS 4913 (2014).

Too frequently, court-appointed counsel for debtor[’s] and the official creditor committees’ interests in a case, sharing the mutual goal of securing approval for their fees, enter into a conspiracy of silence with regard to contesting each other’s fee applications. (citation omitted).

While the Asarco case is better known for its holdings on fee enhancements and fees for defending fees, Judge Edith Jones wrote to suggest that there are not enough objections to fee applications filed. 

9. Judge Angie Alias’s review of The Interview. 

On this holiest of holy days–the day on which Christians celebrate the birth of Jesus of Nazareth, and in this season in which men and women of all faiths and nations endeavor to spread peace on earth and goodwill toward men–I would do something completely different. I would support every artist’s creative freedom. I would quietly pay homage to every artist’s First Amendment Right to write, speak, or otherwise express whatever he wants, no matter how offensive. I would do my own small part in telling world governments, monolithic corporations, and anonymous hackers that censorship and stifling of artistic freedom (even bad artistic displays) will never be tolerated in our American society. 

Judge Alias’s comments were significant not only because they were the first guest post in this blog, but because an Article I judge was willing to stand up for the right of Seth Rogen and James Franco to make movies in bad taste notwithstanding threats from North Korea.

8. Declaration of Robert Marie Mark Karpeles in Case No. 14-31229, Mt.Gox, Inc. (Bankr. N.D. Texas). 

Bitcoins are "created" through a computer software algorithm which, at any point in time, resides on thousands of computers on the Internet. Persons who accept to certify bitcoin transactions over the bitcoin peer-to-peer network are remunerated by the issuance of a fixed number of bitcoins which evolves over time. The certification is done by the solving of an "algorithm" with the use of ever-more powerful computers. These persons are called "miners" and the process of obtaining bitcoin in this fashion is called "mining." 

Finally someone explains what a bitcoin is. 

7. Fed economist William Strauss speaking at NCBJ. 

Bankruptcy is good. Unemployment is good. They are necessary evils. . . . Unemployment makes workers available to industries that are rising. Bankruptcy makes resources available to industries that are rising. 

It’s comforting to hear that what we do is worthwhile. However, it’s a little creepy that he seems to be channeling his inner Gordon Gecko.

6. Judge Jeff Bohm in Case No. 12-32096, In re Cody Smith (Bankr. S.D. Texas). 

Over my dead body. I do not like mediation. I think it is wasteful for the most part and you all needed to get my permission. 

Judge Bohm has some outspoken opinions and he is not shy about expressing them. While he is often provocative, he is always thoughtful.

5. Obsidian Financial Group, LLC v. Cox, 740 F.3d 1284 (9th Cir. 2014). 

The protections of the First Amendment do not turn on whether the defendant was a trained journalist, formally affiliated with traditional news entities, engaged in conflict-of-interest disclosure, went beyond just assembling others’ writings, or tried to get both sides of a story. As the Supreme Court has accurately warned, a First Amendment distinction between the institutional press and other speakers is unworkable: “With the advent of the Internet and the decline of print and broadcast media . . . the line between the media and others who wish to comment on political and social issues becomes far more blurred.” 

For obvious reasons, I was impressed that the Ninth Circuit was not willing to relegate obnoxious bloggers to second class First Amendment freedoms.

4. Judge Stephen Higginson, dissenting from the Fifth Circuit’s denial of rehearing en banc in BP RE, LP v. Waxahachie Dodge (In re BP RE, LP), 744 F.3d 1371 (5th Cir. 2014). 

I will not belabor the importance of a case that, in effect, strikes down a federal statute and whose result may disrupt the way our district and bankruptcy courts handle a large volume of routine bankruptcy business. 

This was a Fifth Circuit case holding that consent was not available in Stern v. Marshall cases. In dissenting from rehearing en banc, Judge Higginson showed that he understood the magnitude of the problem.

3. Judge Edward Prado, specially concurring in Barron & Newburger, P.C. v. Texas Skyline Interests, Ltd. (In re Woerner), 758 F.3d 693 (5th Cir. 2014). 

Even though we find no error in the bankruptcy court’s use of the Pro–Snax standard to resolve the attorney fee application in this case, I write separately to note that the Pro–Snax standard may be misguided. It appears to conflict with the language and legislative history of § 330, diverges from the decisions of other circuits, and has sown confusion in our circuit. 

Judge Prado deserves a judicial courage award for following a dubious Fifth Circuit precedent while recommending that the en banc court re-examine the case. Usually it is a dissenting judge who suggests en banc rehearing. Here it was the judge who wrote the court’s opinion.

2. Executive Benefits Insurance Agency v. Arkison, 134 S.Ct. 1365 (2014). 

If the claim satisfies the criteria of §157(c)(1), the bankruptcy court simply treats the claims as non-core: the bankruptcy court should hear the proceeding and submit proposed findings of fact and conclusions of law to the district court for de novo review and entry of judgment. 

While not answering the question posed to the Court, Justice Thomas gave the reassuring message that there was a means to comply with Stern v. Marshall. In other words, he let us know that it was not time to panic just yet.

1. Law v. Siegel, 134 S.Ct. 1188 (2014). 

It is hornbook law that §105(a) “does not allow the bankruptcy court to override explicit mandates of other sections of the Bankruptcy Code.” (citation omitted). Section 105(a) confers authority to “carry out” the provisions of the Code, but it is quite impossible to do that by taking action that the Code prohibits. 

What could be better than a case where the lawless debtor was named Law? In a case taylor made for him, Justice Scalia let us know that section 105 is not a mandate to override the Bankruptcy Code. This is now so obvious that I roll my eyes at myself whenever I am forced to rely on section 105 for a proposition with no other support. 

Honorable Mentions:

Judge Harlin Hale in Case No. 14-30699, In re Buffet Partners, Ltd. (Bankr. N.D. Texas). 

Not much law, statutory or otherwise, exists regarding structured dismissals of this type. 

A statement of the obvious.

Judge Jeff Bohm in No.10-41603, in In re Karl Stomberg (Bankruptcy S.D. Texas). 

The fact of the matter is that she's a creditor in this case, and I don't know how on God's green earth one attorney can represent an ex-spouse and an ex-spouse without having a fair amount of ill feeling in the pit of his stomach, but obviously Mr. Braun concluded he could. 

Another statement of the obvious. Although this hearing took place in 2010, I just saw it in 2014.

Jeffrey Lasker, president of the Richmond Fed, speaking at NCBJ. 

You might be wondering why a central banker, the head of a regional Federal Reserve Bank, is interested in bankruptcy — particularly since distressed banks and other financial firms have for decades been handled outside the Bankruptcy Code, through discretionary processes that at times involve government-funded protection of depositors and other creditors. But in fact, that is precisely the source of my interest: I have come to believe that such discretionary actions played a critical role in the financial crisis of 2007-08. 

This probably should have been higher up on the list. However, I fear that his comments will fall on deaf ears. The current Congress is unlikely to have any interest in too big to fail legislation of any stripe.